Liz Truss’s desperate bid to save her sinking premiership

Liz Truss’s UK government has already set a record. At 38 days, Kwasi Kwarteng is the shortest-serving chancellor of any to leave office alive for almost 200 years. The big question now is whether Truss herself can last much longer. Her government has got off to the worst start of any in Britain’s postwar history, and been forced into a devastating U-turn. Firing her finance minister and reversing a tax cut that was central to Truss’s pitch to lead her party may open a path, with other measures, to closing the hole in UK finances. Yet gilt yields rose again after a prime ministerial press conference that was unapologetic about her disastrous “mini” Budget, and suggested markets had overreacted. Truss is a premier who has been stripped of much of her economic plan, and her authority.

To jettison her ideological soulmate, who fronted what was in reality her own programme, was a striking retreat. The prime minister had little choice after an earlier U-turn, on abolishing the 45p tax rate for higher earners, failed to calm markets. Jeremy Hunt, Kwarteng’s successor, lacks Treasury experience but he is a heavyweight politician who has run three departments.

He will still find it very hard to make the public finance numbers add up. Reversing the pledge not to increase corporation tax from 19 to 25 per cent should save around £18bn, on top of £2bn from keeping the top income tax rate. But before Friday’s U-turn, the Institute for Fiscal Studies estimated the government had to find £62bn by 2026-27 to meet its aim of putting debt on a sustainable path in the medium term. Truss suggested public spending would rise less quickly than planned. But anything that resembles a return to Conservative “austerity” will be politically poisonous.

Where there is reassurance, for investors and international partners, is in the restoration of the checks and balances of UK democracy. Institutions whose job is to ensure fiscal discipline — the bastions of economic “orthodoxy” — have emerged strengthened from an effort to weaken them.

No future government is likely to launch radical proposals without forecasts from the Office for Budget Responsibility, the fiscal watchdog. The Bank of England governor Andrew Bailey gambled by insisting he would not extend beyond Friday a gilt-buying operation designed to help pension funds facing a liquidity crunch. His aim was surely to avoid any appearance of the Bank being used by the government as an instrument of monetary financing. Yet Truss arguably would not have U-turned as she did had she not faced this deadline.

If institutions have been bolstered, however, Truss’s fledgling government is immeasurably weakened. Her whole leadership platform was to go all-out for growth, in large part by reducing a tax burden at a 70-year high. Reversing track leaves her badly wounded politically. Her only hope may be to attempt to mend fences with defeated leadership candidates and their supporters, and pursue preferable supply-side reforms in hope of stimulating growth.

Yet voters have a record of dumping UK governments that lose their reputation for economic competence, even at elections some years later. Truss faces a monumental struggle to convince her own MPs she is capable of rehabilitating her own and her party’s image, and of leading Britain forward. If they conclude she cannot — and some seem already to have made up their minds — they may move against her quickly. That would be a welcome development. But the question of who is the next leader of the country should then be settled not by the Conservative party, for a third time since 2019, but by voters at a general election.